Adient Earnings: Large Volume Recovery From Chip Shortage Finally Starting to Happen

Adient’s ADNT fiscal 2023 third quarter saw it finally get the large volume rebound that auto suppliers have badly needed as the pandemic and chip shortage recede. Revenue increased year over year by 16.4%, which along with improvements in operation and less freight costs enabled Adient’s adjusted diluted EPS of $0.98 to obliterate the $0.46 Refinitiv consensus. We raised our fair value estimate to $73 per share from $68, due to about 2% more revenue modeled over our five-year explicit forecast, about 7% less capital expenditure modeled after CFO Jerome Dorlack said spending will be sub-$300 million to $330 million after fiscal 2023, and the time value of money. Management increased fiscal 2023 guidance for revenue, adjusted EBITDA, equity income, and free cash flow, with revenue now expected to be about $15.4 billion from $15 billion, adjusted EBITDA over 8% higher at about $920 million, and free cash flow 28% higher at $275 million.

Guidance does not include any damage from a possible strike at any of the Detroit Three that could start around mid-September. Dorlack stressed Adient’s diverse customer base, with automakers such as Toyota, and said a strike at all of the Detroit Three firms would cost Adient about $80 million-$100 million in weekly revenue. Adient’s notable 2024 debt maturity is only EUR 123 million, and the firm has about $1 billion in credit line availability plus $908 million of cash, so we think it would be in good shape to handle a long customer stoppage. However, we feel Adient is more at risk than some suppliers we cover because Stellantis, an automaker we think is most likely to have a strike this fall, was 12% of fiscal 2022 revenue.

It was great to see the Europe segment contribute half the adjusted EBITDA gain, excluding a $16 million insurance gain in the segment. Management’s efforts to reduce material waste plus improving freight costs drove most of the improvement, with volume the next largest contributor after this business performance.